Good afternoon. I'm Josh Jennings from TD Cowen Medical Devices, and we are excited to be on the afternoon track on the first day of the 44th Annual TD Cowen Health Care Conference with the executive team from Tandem Diabetes. We've got President and CEO John Sheridan, Vice President and Chief Financial Officer Leigh Vosseller, and oh, God, EVP and Chief Administrative Officer Susan Morrison. I'm going to hand it over to you to just read a quick blurb.
Thank you. I want to give everyone the legal disclaimer that today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, and financial performance and operating plans and speak only as of today's date. These statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause the actual results to differ materially from those expressed or implied in our forward-looking statements. Further details related to our forward-looking statements can be found in the Safe Harbor slide included in Tandem's conference materials. Back to you.
Thanks, Susan. Well, we might as well just kick off with absolute thank you guys for coming out, at least. Just 2024 guidance was issued recently. I think it was consistent with what some of the high-level commentary you guys have provided to the investor investment community throughout the back of last year. But 10% growth from off of the 2023 revenue base, U.S. growth about 8%, international high teens a nd I think investors are really interested about the evolving competitive landscape within the pump market, both in the U.S. and in the OUS a nd maybe you can help just reiterate some of the drivers of those assumptions and then also what you baked in for, I guess, for the compet-
Yes.
you want to do that, Leigh?
Yeah. So when we put together the guidance, a number of factors obviously come into play. We focused it more on what I would call our predictable revenue streams, more so than what we think we could grow the business with the new product opportunities. So that starts with the supply sales, which are pretty easy to model based on our install base. We have 450,000 people worldwide, people using our product and enjoying the benefits of Control-IQ. And then on top of that, we added the renewal opportunity a nd that's been pretty remarkable for us because in the last few years, even through what's been a challenging period for us, our renewal stream has remained steady and strong in terms of capture rate.
As we look ahead into 2024, the number of new opportunities coming from customers who use our pump today, whose warranties will be expiring, is growing more than 30%. So embedded in the guidance is the fact that we believe we can continue to capture people at the same rates as we have in the last 2 years. Then on top of that, mostly from a U.S. perspective, focus on what's going to happen with new pumpers. That's the big question for everyone. What we factored in that right now we can bring at least as many new pumpers to Tandem in 2024 as we did in 2023. The important footnote to that is that does not imply that there's going to be any change in the business or the trajectory of the business because of our new product offering.
It's in complete contrast to our excitement over the new products and what we think they can deliver for the business but f or now, we're going to set the expectations at this level until we get started. As we gain more information and trends on those products, then we will start to talk about how we would layer them into the guidance.
Thanks for that. Just thinking about the renewal opportunity, I think your historic rate of last year is about 50% capture. Within that 50%, though, that other 50% that's uncaptured, they're just not renewing yet. The majority of those is our assumption. But can you just talk about that 50%? Then as those warranties expire, how long is the average for your population to renew or redevelop t:slim?
Yes. So a couple of data points here. Our goal is a 70% renewal rate, and we have been consistently reaching that about 18 months from when people's warranties expire a nd that's been, again, consistent over the last few years. T hose are our peak rates of capture that we've ever seen before in our history. The data point about what we captured within the calendar year, that's the blending of the people whose warranties expired in Q1, who are further along in that renewal cycle, and the blending of people whose warranties expired in Q4, which is usually the biggest quarter of the year. And so, we've been able to capture about 50% of people whose warranties expire within the same calendar year. We did that in 2022. We did it in 2023 a nd as we look at the 2024, we're going to 70,000 new warranty expirations.
So we would assume that we could capture at least half of those within the calendar year. An important point I would make, though, as I said, majority usually fall in the back half. About 35% of those opportunities don't come to market until the fourth quarter. When you look at the cadence of sales across the year, it will definitely push the opportunities and the sales into the back half of the year.
I'll just add to that, though. If you think about the competitive environment the last six quarters, we definitely have felt quite a bit of pressure. And the one thing that's been surprising to me, well, it's not surprising. I think it's great, is that more people are renewing faster in this competitive market. And you would think if there was ever a chance for someone to switch, they would do it when their warranties are up. They're not. The majority of those people are staying with Tandem, and I think it's because we have the best algorithm, and we have fantastic customer service, and people really appreciate that.
Yes. And you guys have not baked anything in for the Mobi launch or some of the sensor integrations, but we'll get into that in a second. But before we do, just wanted to talk about the international guidance as well. I mean, you have new products there with CGM integrations coming. You've got Tandem Source. Just any underlying assumptions within that high-teens guidance for the international business?
Right. So we still view the OUS market as a tremendous opportunity for the business. There are more Type 1 s in the countries we serve outside the U.S. There are 3 million than in the U.S., where it's only 1.9 million. And the penetration rates are very low. By comparison, outside the U.S., we see them in the 10%-15% range, where in the U.S., we're already at 35%-40% pump penetration. And so, what we're doing as we're thinking about the guidance for 2024 is we're anticipating it will be a noisy environment because of the competitive dynamics there. And so we factored that in to make sure that we're considerate of that in our guidance as we're setting expectations for 2024.
Got you. Then moving to Mobi, congratulations on all the progress there and then moving into full launch mode soon here. But you did have the pilot program. And I'd love to just you mentioned about some of the favorable feedback that you received from those initial, I think, 150+ patients over a couple-month period. Maybe just to review what that feedback was, and then if there's any other feedback that could drive some just minor enhancements of the system.
Sure. So as I said, we had about 150 people using the product for the last four months, four or five months, a nd there are people that were Tandem employees, and there were also people who were from external clinics. , and there were also people who were MDI, people who were insulin, and people who were Medtronic users. So a really good cross-section. And I would say that one of the most common things that people say is that when they first see it, they can't believe how small it is. They're really stunned by that. And I think that it is small. I mean, it's about half the size of the t:slim, and it doesn't have a controller. The control mechanism's entirely through a mobile app. And so what people say is that it's very light.
We actually sell it with an adhesive patch and a very small infusion set. So you can pretty much put it anywhere in your body. People say they have forgotten they've got it on. The fact that you control it by a mobile app, it basically does not require you to interact with the system at all. So, I mean, what we're seeing, I think, is that it's really, I think, in the past, there was this tube-tubeless argument. I think what we think now is really the important part is wearability and choice. I think wearability, I mean, really the ability to put it pretty much anywhere you'd like, the ability to detach with the choice of multiple sensors and also the best algorithm really is driving a great deal of excitement.
And so in that group of 150, there were several people who were actually endos who have Type 1. And they were really excited, and they were really talking about the application of this to their patient population. And so we rolled it out on February 13th. We really started the first formal sales on the product. It's only been two weeks now. But we've been attending a lot of practices with our sales organization and helping train and make people aware of it.
And it's been kind of surprising how many people come to these meetings. I mean, the entire practices are showing up. We're seeing 10, 20 people show up to just understand the product a nd I think the sales force is excited. We can definitely tell that the endo community is excited, and we think this is going to be a real meaningful product for us going forward.
I know there's a lot to learn in the launch, but with Mobi on board now as you move into full launch mode, I believe, in the coming weeks/months, it seems as on the renewal opportunity, but we could add a boost on the patients, MDI patients, currently the pump patients. Mobi is an attractive option. So I guess the question really is just that, as you said, this year's guidance, 2024 guidance, I mean, is there a more conservative approach than in past years, or how would you classify it?
Yeah. I think I would say it's more weighted to the risks than the opportunities. And so trying to take into consideration in the past couple of years, there were some surprises that came. We maybe underestimated the competitive dynamics to some extent, and we had our own challenges outside the U.S. with some of our markets. And so we wanted to think about how to factor those types of risks into the business model as we set the guidance and leaving room for the upside opportunities that could come from these products, which we think will make a significant difference in how the business scales and grows.
Great. And there's no manufacturing capacity constraints, at least built into your internal Mobi launch plans and reliability, at least in the pilot program. There are no issues, but there's always.
I think there are theoretical risks as you launch a new system. We have capacity today to build what we anticipate the demand will be for the year. And so adding capacity is really not that significant of a challenge for us. So that's definitely where we are. I think that when you look at the performance of the system over the last four months, it's been fantastic. It really did perform extremely well. What we spent quite a bit of time doing was making sure that the training processes that we used to make sure that physicians and their staff are comfortable and familiar with the system doesn't introduce any more problems. The same thing for the training for the person using the pump. A lot of focus on that. But we also have a large customer service organization that takes calls 24/7.
We wanted to make sure that they were ready. The last thing we wanted to do, and the reason we took so long, was we wanted to make sure that when the product is on the market, it's not driving problems or negative issues in the marketplace. We wanted to make sure that it would be a very positive introduction. And so we feel like we're in that place today. And so, again, we're happy with the way the system's performing, and we're also happy with how prepared we are in terms of our internal organizational end systems.
If we think about the timing of G7 and Libre integration to Mobi, I mean, those are just software upgrades. Now, they have G6 compatibility already, is our understanding. But there really shouldn't be any kind of waiting period for patients looking to have access to G7 or Libre. They can adopt Mobi on G6, just have that software update to convert over once that integration is fully on the market.
We intentionally introduced it with G6 because we have so much experience with a G6 sensor. Since it is a brand new pump platform, we wanted to make sure it was just let's eliminate a variable. I mean, we didn't want to put a new sensor on a new pump at the same time. We've done that now, and we've seen great results. We're certainly working to get G7 on the system here in the next late spring. We'll definitely be rolling that out. As you said, all of the software, all of these updates that we're making to the pump to provide new functionality as well as sensor integrations are software updates that are made available to people who are in warranty for free of charge.
And so that's one of the reasons that people do come back is because they know they've got access to this new technology, and they get it free of charge as long as they're in warranty.
Wanted to ask about the t:slim and Mobi, kind of two offerings in the market now and that coexistence of two platforms. I mean, it makes sense. You're going to be moving. We talked a little bit more about the pharmacy channel, but access in the pharmacy channel, t:slim and DME. But it makes sense to us also that the patients with experience with t:slim, great experience controlling their algorithm, time range, they'd want to just continue with that platform. But I mean, how do you see the type of patient selecting t:slim versus Mobi going forward? It may not be clear right now because you have more commercial experience, but just help us understand that coexistence and how you see the patient selection process going between the two pumps, Tandem's offering.
So when we look at the market, we view diabetes as being very segmented. There's people who have different desires in how they interact with the system, how they wear it, how they control it. There might even be very subtle reasons they prefer one over the other. We feel that to be successful in this marketplace, we need a portfolio of products. So we think that having t:slim, Mobi with a tubed and tubeless option, and Sigi really address the complex needs of that community. I think specifically when it comes to Mobi, as I said, it is fully controlled by a mobile app. So I think that it's small. It's discrete. You would think that maybe somebody who is more mobile, somebody who's more computer-savvy, more comfortable with technology would probably use Mobi.
When it comes to t:slim, we definitely think that there's still going to be a meaningful percentage of our new starts that will come and want the t:slim system. Some people just want to have that pump in their hands. They want the control mechanism to be on the pump. There's a certain level of comfort they get from that. I think that all of our products will have Control-IQ on them. It really comes down to the personal preferences. We think that by having this portfolio and in the next couple of years, we'll have all of these products on the market. Certainly, today, we have half of the number of products that are available commercially. We're excited to be in that position.
Excellent. You've talked, John, I think, and we were talking about this a year ago at this healthcare conference in 2023, just about the integration with Libre. Libre is such a big population of MDI patients. And just that potentially driving the integration with Libre, not just with Tandem's pumps, but some of your competitors' pumps, could drive some of the MDI patients to increase the technology kind of portfolio that they have for their personal diabetes management. How do you tap into that? How does Tandem tap into that opportunity directly? I mean, is it just now that Libre's integrated, all these Libre patients will kind of get this understanding that pump technology is now available that's compatible with their CGM? Or does Tandem do anything special in terms of marketing to that channel to try and capture as much share as possible?
Yeah. I mean, I think it's a great question. And today, when you look at the choice is very important for us. And so we think it's really important to have access to the leading sensors on the market. And now, both the Dexcom G7 and the Libre are both integrated with our product. And again, choice is hugely important. I think when you look at the current install base, we have 450,000 people who are essentially all using the G6 or G7. I t's a great product, a nd it's a product that's got a much better form factor. It actually starts up faster. There's a lot of big benefits to that. So we expect that that's going to continue to drive incremental new starts for Tandem a nd as Dexcom continues to innovate, we'll benefit from that.
But the thing about Abbott is Abbott has 300,000-400,000 people today that are Type 1 in the U.S. market that use their sensors that don't use a pump. And so that becomes almost a whole new market for us. And if you look at the total number of MDIs that are on the market today, obviously, not using a pump, it's about 20%. So it's a very big number. And I think that we've talked to the people who are using the Abbott sensor. There's definitely a lot of interest in having access to pump therapy. The therapeutic benefits are substantial. I mean, there's an immediate improvement in the quality of life on a daily basis, but there's also the reduction of the longer-term comorbidities that come along with Type 1.
So this is a group of people that we intend to market to specifically, to collaborate with Abbott and work with the Abbott sales organization to get access to that population. The thing is, it's a large portion of the people in the U.S. that have Type 1. It's also a large portion of the U.S. and the Type 2 opportunity is even larger. So I think the partnership's a good one. It's an important one, and we see it driving longer-term growth for the business.
Great. The Control-IQ we've heard over the years just from conversations about the algorithm and how sophisticated it is, the time in range results, and that drove a significant amount of share gains when you guys first launched that algorithm with t:slim X2. Any updates just on how that algorithm can evolve for one? And then two, you guys have confidence in the Control-IQ algorithm as well. I mean, is there ever a period where Tandem decides to run a head-to-head trial against some of the competitors, or are there any centers that are running head-to-head trials to kind of drive further differentiation for Control-IQ versus other algorithms?
Yeah. I mean, I would say that we believe that the Control-IQ algorithm is the best algorithm on the market. If you look at, we have three clinical studies that were all published in the New England Journal of Medicine. The results are fantastic. I think that what the benefit really is you get immediate and sustained improvement in terms of your Time in Range . The other algorithms that are on the market, they have a learning period. It takes a time for you to actually get into control and into range. And I think that with ours, it's immediate and sustained. And if you manage your diabetes carefully, we have people who talk to us all the time that say they have high 80s, low 90s, even 100% Time in Range for relatively extended periods of time. So it's a fantastic algorithm.
We actually just got approval from the FDA for an enhancement to the algorithm in December, and we're working on the implementation of that now. We haven't said specifically when it's going to be on the market, but one of the benefits of that is it'll actually give us an indication for ages down to Type 2. It'll also enable us to work with people that have much larger body mass and larger insulin usage. It'll be the algorithm that's used for the Type 2 study that we have underway right now. It's a more inclusive algorithm. It'll allow more people that have Type 1 and Type 2 diabetes to use our system. It also has a number of personalized benefits in terms of features that we've added that provide a level of personalization that people really appreciate.
But the algorithm's incredibly important to us, and we have established an internal organization of developers that are all experienced in algorithm sort of engineering and development. And we also have a number of partners in the marketplace that have expertise. And so together, we're definitely working to continue to advance it. I would say that certainly, a fully closed-loop system is a goal of ours as an organization. We expect to get there. We think we can do it with the technology that we have today and still provide excellent benefits to people living with diabetes. So I think that's the algorithm development is incredibly important to the company, and we are investing a significant amount of our R&D resources in it.
I think that you'll see we'll continue to add features and capability in time to the install base so that people can anticipate that they'll see those benefits when they're available.
Understood. Thanks for that. Did I talk about Type 2? Your team is at a pivotal trial for the Type 2 indication, and I believe that the study may have been complete enrollment, at least according to the pivotal trial.
It's not yet formal.
Okay. But you may have data and file later this year. Your team has discussed and nice indication expansion. Maybe to start on this topic, just percentage of Type 2 pumpers within your patient base. Have you guys disclosed that?
Yeah.
You have.
We have about 20,000 people-
Fantastic.
... who are using the Control-IQ system that have Type 2 off-label. Now, right now, none of the larger pump manufacturers have an indication for Type 2 yet. All three of us are involved in clinical studies to enable that. We have the study. It's underway. We would anticipate it'll be done probably in the back half of this year. We would see ourselves presenting data at some of the conferences that occur in the late fall. And then we would go through an FDA submission, anticipate having the product in the market in the 2025-time frame. And if you look at the market today in the U.S., there's about 2.3 million people that have insulin-intensive Type 2. And it's only penetrated. Only about 100,000 use a pump. I t's only 5% penetrated. I t represents a large opportunity in the U.S.
We have definitely talked to people who have Type 2. There is definitely interest in pump therapy out there because of the benefits that are essentially the same as they are for somebody who has Type 1. Then if you go OUS, it's a much larger market than it is in the U.S. Again, it's an area of investment which we think is going to continue to bring the benefits of our technology to a much broader group, but at the same time, help us grow the business and get to the point where our goals internally are to have a million people using our technology to get to a 65% gross margin and a 25% operating margin. We think that by providing this technology, that group is going to enable us to achieve that.
Great. And we were just on our team whether that approval would be tied to the algorithm, Control-IQ, or the device t:slim. Just thinking about Mobi, and would you have to run a clinical trial, or would that approval kind of carry over and over the Type 2 indication for Mobi as well? Maybe down the line.
Yeah. The FDA has developed a class of products that they call interoperable. The Control-IQ algorithm is called the IAGC. And it's an interoperable automated glycemic controller. That's right. So that's what we're getting approval for. We're getting these indications for Control-IQ. Once you have approval, you can load it on any interoperable pump. And today, both the t:slim and the Mobi pump are interoperable. So as soon as that indication is available, we will have it on the pumps. We will make it available to people in the marketplace to update it if they'd like to. But we will begin selling the existing pumps with the new software.
Another advance for Tandem this year is opening up the pharmacy channel and access through that route. And you guys have talked about having one contract under your belt by the end of this year. And I guess the question is just about the progression there. I mean, that's just the start, and then either there could be a domino effect of other people. Will each contract take a significant amount of time to lock in? Any help just thinking about the cadence of more contracts after this initial one?
Sure. So the pharmacy is a big initiative for us, and we've made a lot of inroads, I would say, in the last six to 12 months. The first one is I think we've answered the question of whether or not a durable pump would be accepted in the pharmacy channel. And so where all systems go on that front, we're having many active conversations with PBMs and insurance payers on our entry point in there with Mobi as the first product. Our number one goal, I'll start with this, is to make sure that the economics for the patient are better than what we get through the DME channel. I t's really focusing on the patient out-of-pocket cost and getting the lowest possible amount s o that won't be a barrier for people or a perception that durable pumps are more costly.
Secondly, we want to at least get as equal to or a premium to what we're seeing in the DME channel from a revenue perspective. So with those two thoughts in mind, we're going to be very methodical about the contracts that we sign a nd it's not about getting a contract or any contract at any cost. It's about getting a contract that's really good for Tandem. Our DME channel, we have some really good contracts there. We have some, for example, where a patient doesn't even have an out-of-pocket cost on the pump. So we're being thoughtful of who we're targeting and that sort of thing a nd so, getting the first one or two is going to be the biggest lift. T hen I think what we'll do is we'll have a template that we can somewhat replicate as we look into other agreements.
These are somewhat gated by the payers themselves because many of them have time points where they allow new products to come on formulary. So it's not like we could turn this on overnight by any means. It's probably a multi-year initiative. But the long-term goal for us is we pave the way with Mobi. We get some level of access that makes sense for our business and that we really want to take Sigi straight into the pharmacy channel down the road. And so it's about what we can learn and how we can build it here in the near term.
Great. And then the different, I guess, revenue-generating models for Tandem, I mean, I think you've broken down a couple similar to DME on one end and then just kind of a monthly or subscription model on the other. I guess the question is on the subscription model piece. Is the reimbursement, if it goes through that challenge, equivalent to kind of over a four-year period, supplies plus pump getting paid on a per-monthly basis? Is that one potential challenge? I believe that's kind of how it works for the current AID system that's accessed through the pharmacy channel, Insulet's Omnipod 5.
Yeah. You're right. That is one of the scenarios that you could envision. There's a lot to be learned this year as we're negotiating these contracts and having these initial conversations. It's highly likely that the contracts will look different payer by payer. So if and when there is any sort of change to the business model because of it, we'll be sure to telegraph that well in advance so people can understand if there's any impact. But for now, we're open to it, and we're excited about exploring this opportunity because we think it can really broaden our access and really help the customers who see cost as a barrier to getting on pump therapy today.
Great. And just in terms of the pharmacy channel access, opening up for competitor and Tandem, and how big of a hit that has been for the business? I mean, the DME channel seems to be pretty accessible. Our understanding is a little bit more administrative work on the provider side, potentially, maybe a little bit more work for the patient side. But there may be some less patient costs in the pharmacy access channel. But any thoughts on just the puts and takes between DME and pharmacy on those metrics and then how big of a headwind it's been for Tandem?
Sure. I mean, I think you framed it well. There is a bigger, if you want to call it, paperwork burden or administrative burden for the physicians and sometimes the patients. That's something we've been streamlining on our own through the DME side. W e've been working to optimize that channel when we can remove prior authorization requirements. We use our Control-IQ algorithm outcomes data as a way to remove that kind of barrier s o we are optimizing that. And we used to have an average of 30 days to get a patient on a pump. We have some plans today where a patient can get their pump within four to five days. And so it varies across the spectrum there. Pharmacy does have a little bit lighter burden, I would say, in that regard, which is another reason that we're interested.
But what we haven't seen, I would say, is a physician making the decision based on what your insurance requirement is or the insurance channel. We believe that they still offer all of the products, and they're working to find the solution that's going to work best for the patient because making that decision based on a channel might not be a solution that the patient will want to stick with in the long term. And the most important part is improving their therapy.
Great. I mean, we have time for one last question on the pipeline on the hardware side. t:slim X2, Mobi, you're working on Mobi tubeless, X3 and Sigi. And then ultimately, I mean, could you have five pumps in the market, or could the success of Mobi kind of optimize that pipeline or condense it? Or how should investors and maybe even clinicians think about the portfolio three to five years out that's commercialized and all the offerings for Tandem?
Yeah. I mean, I think that with Mobi, first of all, it's going to be Mobi tubed and Mobi tubeless. It's the exact same pump. It's the supplies that are different. So it's a new cartridge and a new infusion site. So really, our intent is to have three products. I think that the X3 is a technology upgrade on the X2 because the X2 has been around for a while. We want to make sure we take advantage of new technology and don't run into any supply chain issues. And of course, we've got Sigi coming after that. I would say that there's a substantial financial benefit, a margin benefit for having Mobi in the market. We expect to see that in the back half of this year and beyond.
But if everybody decided to choose a Mobi, that would be great for us because we'd see an immediate benefit in gross margin. We just believe that. It's a segmented market. We think there's still going to be a meaningful demand for all three.
Excellent. Well, that's a good place to wrap it up, seeing the red light blinking over there. So thank you guys so much for the time here and for coming up with all our questions. Thank you.